Can I Use a Loan to Fund an EB5 Investor Visa Application or an E2 Investor Visa Application?
Can a loan be used for an EB5 visa? Can a secured loan be used for an E2 investor visa?
Unsecured and secured loans can both be used for investor visa purposes.Yes. Loans are one of the authorized forms of financing that an investor may employ. Investors commonly use loans to fund EB-5 and E2 investments.
You can secure loans or leave them unsecured. Home Equity Lines of Credit (HELOC) can allow homeowners easy access to EB5 financing.
You must file documentation that evidences the bona fides of the loan with USCIS. This includes: (1) the lender’s source of funding; and (2) the method by which money was transferred from the lender to the EB-5 investor.
Investor Visa Borrowing
In 2022 the RIA raised the minimum investment amount for EB5 from $500,000 to $800,000. As a result, more people wanted to borrow money to finance EB5 and E2 investor visas.
EB-5 Visa and E2 Visa Loans
An EB5 Visa USA loan refers to a loan that’s taken by the petitioner to fund part or all their EB5 investor visa application. As E2 visas are also investor visas the same principals generally apply for financing an E2 investor visa.
Four Sources of EB5 Loans
There are generally four sources of E2 and Eb5 qualified loans: 1) private loans; 2) institutional loans, including bank loans; 3) loans from an EB5 Regional Centers; and 4) seller financing available in both E2 and EB5 Direct cases.
Looking for an Investor Visa Lender
Many Eb5 investors borrow money or take gifts from family. Investors can also borrow money from a bank or financial institution by using their home or assets as Collateral. More recently a number of Regional Centers have started to finance Eb5 transactions. For Direct EB5 investors and E2 investment visa investors purchasing a business seller financing may also be available.
Secured and Unsecured EB5 Loans
All loans are either secured by Collateral or unsecured. The investor needs to secure a secured loan with their personal property (Collateral). An unsecured loan does not require any Collateral.
Most investor visa lenders require collateral to secured loans used for EB5 funding, unsecured loans are hard to find.
What is Collateral for a Loan?
“Collateral” refers to the assets used to secure a secured loan. If the borrower does not repay the loan as agreed, the lender will sell the Collateral to pay the loan.
EB-5 Visa Loan Requirements and E2 Visa Secured Loan Requirements
There are several requirements for a secured loan to be qualified as EB-5 investment funds. These requirements include:
The loan must be secured by the investor’s assets or property. The EB5 investor can only use personal property (Collateral) they own to secure an EB5 loan. EB5 qualifying personal property (Collateral) can include: Stocks and other securities, gold and jewelry, real estate and other assets.
Source of Funds for Collateral. An EB5 investor must prove how the Collateral securing an EB5 Loan was purchased. The Eb5 investor must also prove how the funds used to purchase the Collateral were lawfully earned.
Value of Collateral. The value of the investor’s Collateral must be equal to or more than the loan amount.
Perfection of Security Interest and Mortgages. The lender’s security interest in the Collateral must be perfected. In simple language that means that the mortgage or other loan used to secure real estate must be properly registered as required by law.
The investor must be the principal borrower of the loan and must be fully responsible for its repayment. The loan must be under the investor’s name and they must be solely liable for its repayment.
Investor is “At Risk”. An investor places their personal assets “at risk” as Collateral in a secured EB5 loan or E2 loan. The investor clearly meets the “at risk” requirement.
Purposes of Loan. For the EB5 visa program the capital investment funded by the EB5 loan must placed “at risk” and create ten jobs. Investors accomplish this by investing the loan proceeds in an EB-5 project.
Eb5 projects require an investment of USD 800,000 or USD 1,050,00 and must generate at least 10 new direct and indirect jobs.
Mortgages and Remortgages
Investors may also remortgage or refinance using a mortgage with a fixed or variable interest rate. A bank can quickly determine if a house or a condominium is qualified for a cash-out refinance. The loan can be quickly arranged with the proceeds reaching the investor’s account within 45 days, subject to the appraisal and the lending review processes.
Land-Based Loan Transactions
If you are going to use a bank loan secured by land, you will need to provide copies of all relevant loan documents. In addition, you must prove the source of funds for the original land purchase. The loan must also comply with the laws of the country where the land is located.
E2 Visa and EB-5 Visa Un-Secured Loan Advantages
An unsecured loan has a few advantages:
No Source of Funds. A loan from a recognized financial institution has no source of funds requirement. As an unsecured loan has no Collateral there no requirement to trace the funds used to purchase Collateral. An unsecured loan which is not from a recognized financial institution will require proof of how the lender earned the funds to make the loan.
Assets not at Risk. Because the loan is unsecured the investor’s assets are not immediately placed at risk in the event the loan is not re-paid.
Investor is “At Risk” for EB5 Purposes. USCIS traditionally took the view that investors using unsecured loans to finance EB5 investments were not “at risk” as required by EB5 law. As a result of a court case decided in October 2020 the position has changed. Unsecured loans can now be used to finance EB5 investments. As the court decision is fairly recent there is little data on how the USCIS is deciding cases where foreign investors are relying on unsecured loans.
EB-5 Visa Loan Repayment Terms
Depending on the circumstances of the case it may best to with until Form I-526 is approved before paying off an EB5 financing loan.
The reason for this is USCIS may ask to see proof that the loan is still outstanding at the time the I526 is adjudicated. If the loan has been paid off USCIS may then ask for proof of how the funds used to pay off the loan were earned. This may raise complications concerning the source of funds at the time the case was originally filed.
USCIS has not stipulated any repayment requirements for short-term loans. It is however advisable to repay loans only following the approval of your I-526 petition.
If you intend to use a loan for your EB5 funding, you will need to produce documents confirming the lawful source of the lender’s funds and the lawful source of the assets used as collateral for the loan. The USCIS may request proof of the legal source of cash to repay the loan if the loan is repaid before your I-526 petition is approved, but you won’t need to show proof of cash once such petition is approved.
Just like in short-term loans, the USCIS has not issued requirements for repaying long-term loans. There’s no indication that longer-term loans will cause your investment to lose its status as an “at-risk” investment. The EB-5 investor program requires investors to place their investment “at risk” for a period of two years. law Capital can neither be managed or governed by redemption agreements insuring loss nor by contractual promises to repay funds. For capital to be “at risk”, there must be a chance that it will be lost.
Loan Documentation in Investor Visa Cases
A loan taken to fund an E2 or EB5 investor visa case will have certain documentation. The US Government, USCIS and the US State Department will all want to see:
- The Loan Agreement,
- A Promissory Note (sometimes combined with the Loan Agreement into a single document)
- A Security Agreement which secures the loan with the Collateral (for secured loans only).
How to Negotiate Eb5 Financing: Key Terms to Watch for in an Eb5 Loan
Eb5 investors would be well advised to retain an experienced lending lawyer to review loan documentation. Key issues to look at in the loan documents include but are not limited to:
- Whether or not there is an early repayment penalty.
- Purpose clause. Make sure that the loan agreement has a purpose clause that includes EB5 as a permissible use of the funds. A clause that states funds can be used “for any lawful purpose” is proper.
- The amount and duration of the loan, and the procedure for disbursement.
- How interest will be paid. Monthly, quarterly, or annual terms of the principal and accrued interest.
- Full fees and costs, including any origination points or other fees.
- Check that is it lawful to borrow money secured by local property. And remit the proceeds of that loan abroad.
Loan Interest Rate
Loan interest is the amount that a lender charges to a borrower for lending the borrower the money. To calculate loan interest, multiply the interest rate by the outstanding loan balance. Market conditions and credit standards determine interest rates for EB5 Visa loans.
A wide variety of loan products on the market that meet EB5 needs. These can include 30 and 15 year fixed repayment terms using various fixed and adjustable interest rates.
At the time of writing, an investor can borrow $800,000 at a 5% interest rate by using a $1 million home as collateral. You can then apply the USD 800,000 loan proceeds towards the required EB-5 investment and the associated fees.
Lending Rates from Financial Institutions
There are a lot of factors that can affect lending rates, including a client’s banking relationship and the liquidity and risk level of the asset among others. The lending rate can depend also on a bank’s own cost of capital or external factors outside its control.
Loans from Friends and Family Members
EB-5 immigrant investors can obtain a loan from a financial institution, a friend, or a family member. If you don’t want to deal with banks, you can borrow money from a friend or family member instead. When financing EB5 using a loan from a friend or family member the lender will have to prove how they lawfully earned the funds.
Acceptable kinds of collaterals for an EB-5 Visa loan
USCIS allows EB-5 investors to use any form of collateral to secure their loan as long as the loan is secured by the investor’s assets. Property holdings, real estate, cash, and equipment are some examples of acceptable kinds of personal assets that investors can use as collaterals.
Here at Davies & Associates, our pool of expert immigration services can help you ensure that you comply with EB-5 Visa loan requirements and that you have the best chance of being granted an EB-5 Visa.